As the maturity of the Procurement organization increases there is a clear move to a more centralized operating model to ensure economies of scale and skill. However, there is a risk that this model increases the distance to the actual business. Therefore, the next step of maturity for Procurement Done Right is to create a hybrid operating model that has different degrees of centralization depending on category and that fully utilizes Shared Service Centers (SSC) and outsourcing for more transactional Procurement tasks.
An Aligned Hybrid Procurement Operating Model
A Procurement Operating Model must be aligned with the company strategy and culture, but it is not a one size fits all model. Different spend categories has different mechanics depending on supplier market, industry regulations, degree of standardization, strategic impact and stakeholder organization that needs to be considered.
This can be condensed to three main parts that needs to be considered for each spend category to decide the level of centralization needed to operate. These are supplier market, stakeholder organization and strategic impact.
Three Dimensions of a Procurement Operating Model
Understanding of the supplier market structure in terms of being local, regional or global will indicate if cooperation and relationships should be on local or centralized.
How are key stakeholders organized? Are they locally within the company or are they centralized in a group function? The answer to this affects the degree of centralization in the Procurement operating model as well.
Understanding of how important to the organization the specific spend category is also an indication of what degree of standardization the Procurement operating model should have.
Additionally, an operating model for Procurement also needs to consider how transactional Procurement in the best possible way can be industrialized for efficiency considering different types of outsourcing possibilities.